US FINANCIAL MARKET
Stocks Open Higher as Inflation Picks Up – Wall Street Journal, 1/12/2022
- Stocks rose and bond yields retreated, despite data showing inflation at its highest level since 1982, with investors betting that price pressures might be peaking.
- The S&P 500 gained 0.6%, putting the broad U.S. stock index on pace for a second day of gains after a five-day losing streak. The Dow Jones Industrial Average added 0.5%, or about 180 points, and the tech-heavy Nasdaq Composite Index climbed 0.8%.
- The consumer-price index—which measures what consumers pay for goods and services—rose 7% in December from the same month a year earlier, up from 6.8% in November.
- That marks the fastest pace in 40 years and the third straight month in which inflation exceeded 6%.
- Materials stocks led the S&P 500’s sectors in recent trading, followed by technology and consumer discretionary stocks. The health care segment lagged behind, falling 0.5%.
- Among individual stocks, shares of Biogen dropped 9.7% after Medicare officials said they would cover its Alzheimer’s drug Aduhelm on the condition that patients were in clinical trials and had early-stage symptoms.
- The yield on the benchmark 10-year Treasury note slipped to 1.732% Wednesday from 1.745% Tuesday, when the rally in government bond yields halted. Yields and prices move inversely.
- Overseas, the pan-continental Stoxx Europe 600 gained 0.7%.
- Hong Kong-listed Chinese tech stocks like JD.com and Meituan jumped Wednesday. Analysts and investors said there was no clear catalyst. Hong Kong’s Hang Seng Index surged 2.8% and China’s Shanghai Composite rose 0.8%.
- Japan’s Nikkei 225 and South Korea’s Kospi rallied 1.9% and 1.5%, respectively.
EU Warns Repeat Boosters Could Weaken Immune System – Bloomberg, 1/12/2022
- European Union regulators warned that frequent Covid-19 booster shots could adversely affect the immune system and may not be feasible.
- Repeat booster doses every four months could eventually weaken the immune system and tire out people, according to the European Medicines Agency.
- Instead, countries should leave more time between booster programs and tie them to the onset of the cold season in each hemisphere, following the blueprint set out by influenza vaccination strategies, the agency said.
- The advice comes as some countries consider the possibility of offering people second booster shots in a bid to provide further protection against surging omicron infections. Earlier this month Israel became the first nation to start administering a second booster, or fourth shot, to those over 60.
Omicron, Supply-Chain Troubles to Slow Growth, World Bank Says – Wall Street Journal, 1/12/2022
- The global economy is poised to slow down in 2022, the World Bank forecast Tuesday, citing the effects of the Omicron variant, supply-chain disruptions, labor shortages and the winding down of government economic support.
- The World Bank provided some estimates of the impact of the disruptions, saying that they have suppressed international trade by 8.4% and industrial production by 6.9%, compared with how much activity would have occurred in a normally functioning international system.
- The headwinds are expected to slow economic growth to 4.1% in 2022, down from 5.5% last year, which was the strongest postrecession pace in 80 years, according to the World Bank’s semiannual Global Economic Prospects report.
- Even so, the slowdown is likely to affect most major economies. U.S. growth is expected to slow to 3.7% from 5.6%, according to the forecast, which projects China to slow to 5.1% from 8%.
- Some economies may buck the trend, however, and grow more strongly in 2022, especially those that remained significantly weakened during the pandemic, such as a number of Southeast and East Asian economies.
- Japan, Indonesia, Thailand, Malaysia and Vietnam are among countries expected to strengthen in 2022.
IMF Chief Warns of Turbulence as Nations Withdraw Stimulus – Bloomberg, 1/12/2022
- The world faces greater uncertainty and potential turbulence this year, with the economic recovery’s momentum slowing and risks from inflation and supply-chain bottlenecks to social unrest looming, the International Monetary Fund’s chief said.
- The IMF is preparing for a potential increase in demand for its lending this year as central banks tighten monetary policy and after many developing countries increased their debt, Managing Director Kristalina Georgieva said at a virtual event on Wednesday.
- Disaffection with two years of economic upheaval from the pandemic could lead to greater unrest in some countries, she said.
- Central banks face a “delicate balancing act” between fighting inflation and supporting an economic recovery, Georgieva said.
- The spillover of monetary policy tightening on emerging markets “can add fuel to the fire of divergence” between advanced and developing economies, she said.
Supply-Chain Snags, Quarantines Hurting Global Air-Cargo Growth – Bloomberg, 1/12/2022
- Global air-cargo growth slowed sharply in November as demand was hit by supply-chain disruptions, partly because Covid-19 restrictions left workers stuck in quarantine, causing labor shortages.
- Demand for air freight, measured in cargo ton kilometers, rose 3.7% from the same month in 2019, prior to the pandemic, according to the International Air Transport Association. That’s less than half the 8.2% increase seen in October and also significantly lower than in previous months, IATA said.
- Economic conditions remain favorable, with China and the U.S. seeing double-digit growth in retail sales in November from two years prior, IATA noted, but clogged supply chains are pinching the business.
Supply chain snarls clog U.S. online holiday sales growth – report – Reuters, 1/12/2022
- U.S. consumer spending on online shopping during the holiday season was weaker than expected, Adobe Analytics data showed, as supply chain issues caused product shortages and delayed deliveries.
- Consumers spent a record $204.5 billion online over the 2021 holiday season, an increase of 8.6% from a year earlier, Adobe Analytics said in a report on Wednesday.
- But the figure was lower than the $207 billion expected by Adobe and marked the smallest rise since the company started tracking holiday spending data in 2014.
- Congested ports, coronavirus-related factory closures in Asia and shortages of shipping containers and truck drivers shrank both global and U.S. holiday inventory by 2%, according to data from Salesforce.
- Adobe, which covers more than one trillion visits to U.S. retail websites in its analysis, said shoppers saw over 6 billion out-of-stock messages online, a more than threefold increase from pre-pandemic levels.
- Adobe’s data showed online prices rose 3.1% in December, marking the 19th consecutive month of increase, with discounts narrowing on categories like electronics and sporting goods during the full season.
Primary Wave Turns Up the Volume on Music Deals – Wall Street Journal, 1/12/2022
- After last year’s rush of music deal making, the industry expects even more sales of music portfolios this year.
- Music publisher Primary Wave capped off 2021 with deals for music rights from London folk-rock band America and blues rock baritone Paul Rodgers, investing $40 million and $20 million, respectively, according to people close to the deals.
- Listener preferences for older music, tax advantages on catalog sales and high valuations driven by the idea that music is a recession-proof and high-growth asset have pushed investors and sellers into negotiations, music industry executives and lawyers say.
- A special provision for musicians who sell self-created works means they owe capital-gains tax rates of 20% on the sale. That compares with owing ordinary tax rates of up to 37% each year on the royalty income they get from streaming, licensing and other uses of their works.
Amazon Warehouse Workers in Alabama to Hold Second Union Vote – Wall Street Journal, 1/12/2022
- A federal labor board has scheduled a second union election at an Amazon.com facility in Bessemer, Ala., after a board representative found Amazon violated labor law during last year’s vote in which workers sided against unionization.
- The National Labor Relations Board said the new election will be held by mail, with ballots being mailed to employees on Feb. 4.
- While Amazon won the first vote by a large margin, the labor board’s decision sets up another battle between Amazon and the Retail, Wholesale and Department Store Union, which is leading the campaign to organize workers in Bessemer.
- A spokeswoman for the RWDSU said worker voices “can and must be heard fairly, unencumbered by Amazon’s limitless power to control what must be a fair and free election, and we will continue to hold them accountable for their actions.”
Kroger Supermarket Workers Go on Strike in Denver – Wall Street Journal, 1/12/2022
- Thousands of workers at supermarket operator Kroger went on strike in Denver, the latest push by employees who said they are seeking higher wages, more benefits and safer workplaces.
- About 8,400 unionized workers at Kroger’s King Soopers stores in Denver walked off the job at 7 a.m. ET on Wednesday, according to Kroger and United Food and Commercial Workers Local 7, which represents King Sooper workers in Colorado. The strike affects 87 of 151 King Soopers locations.
- Union officials representing Kroger workers declined to comment on Wednesday. They have previously said they want to secure a new contract with better wages, health and retirement benefits, and to ensure a safer work environment for employees at a time when Kroger is generating higher profits.
- They said Tuesday that going on strike was the only way to get fairer terms after the company had offered unsatisfactory proposals throughout the past few months of negotiations.
U.S. oil producers ramp up fracking in sign of stronger output gains – Reuters, 1/12/2022
- As oil prices have surged past $80 a barrel, U.S oil and gas producers are paving the way for faster production by expanding new well completions in the Permian Basin of west Texas and New Mexico, the country’s top shale oil field, according to research data.
- The number of pressure pumping units at work in the Permian rose 5% in December, over the previous month, analysts at Tudor, Pickering, Holt and Co said. Pressure pumping is one of the last steps required to complete a well.
- The Permian will account for vast majority of this year’s projected boost in U.S. output of up to 900,000 barrels per day.
- Output fell last year to about 11.18 million bpd on storm-related cutbacks and as demand collapsed during the pandemic, according to government data.
- Bank of America analysts this week forecast global spending on drilling and completion will rise 22%, the strongest year-over-year gain since 2006.
Biogen shares slide as Medicare restricts cover of Alzheimer’s treatments – Reuters, 1/12/2022
- A decision by the U.S. Medicare to limit coverage of Alzheimer’s treatments including Biogen’s Aduhelm will hit sales of the controversial drug and dim prospects for similar treatments looking to enter the market, Wall Street analysts said.
- Shares of Biogen fell 9% to $220.44 before the bell, while shares of other drugmakers developing similar treatments such as Eli Lilly, Roche Holdings and Eisai Ltd fell between 2% and 4%.
- The coverage decision by U.S. Centers for Medicare and Medicaid Services (CMS), the health agency that runs Medicare, essentially crushes any hopes of Aduhelm gaining traction anytime soon, J.P. Morgan analyst Cory Kasimov said.
- Analysts said the move could result in negligible Aduhelm sales in 2022 and 2023. The treatment brought in sales of $300,000 in the third quarter, compared with the average analyst estimate of $10.79 million.
US ECONOMY & POLITICS
U.S. Inflation Hits 39-Year High of 7%, Sets Stage for Fed Hike – Bloomberg, 1/12/2022
- U.S. consumer prices soared last year by the most in nearly four decades, illustrating red-hot inflation that sets the stage for the start of Federal Reserve interest-rate hikes as soon as March.
- The consumer price index climbed 7% in 2021, the largest 12-month gain since June 1982, according to Labor Department data released Wednesday. The widely followed inflation gauge rose 0.5% from November, exceeding forecasts.
- Excluding the volatile food and energy components, so-called core prices accelerated from a month earlier, rising by a larger-than-forecast 0.6%. The measure jumped 5.5% from a year earlier, the biggest advance since 1991.
- The increase in the CPI was led by higher prices for shelter and used vehicles.
- Food costs also contributed.
- Energy prices, which were a key driver of inflation through most of 2021, fell last month.
- Shelter costs — which are considered to be a more structural component of the CPI and make up about a third of the overall index — rose 0.4% from the prior month.
- Inflation-adjusted average hourly earnings dropped 2.4% in December from a year earlier, the biggest drop since May, separate data showed Wednesday.
- However, compared with a month earlier, they rose 0.1%, the first gain in three months.
Fed’s Powell Says Economy No Longer Needs Aggressive Stimulus – Wall Street Journal, 1/12/2022
- Federal Reserve Chairman Jerome Powell called high inflation a “severe threat” to a full economic recovery and said Tuesday the central bank was preparing to raise interest rates because the economy no longer needed emergency support.
- Mr. Powell said he was optimistic that supply-chain bottlenecks would ease this year to help bring down inflation as the Fed takes its foot off the gas pedal.
- But he told lawmakers at his Senate confirmation hearing that if inflation stayed elevated, the Fed would be ready to step on the brakes. “If we have to raise interest rates more over time, we will,” he said.
- He said nothing to push back against expectations that have firmed in interest-rate futures markets over the past week that the central bank would begin a cycle of interest-rate increases in March.
EUROPE & WORLD
China Covid-19 Lockdowns Hit Factories, Ports in Latest Knock to Supply Chains – Wall Street Journal, 1/12/2022
- With Covid-19 flaring up across China, major manufacturers are shutting factories, ports are clogging up and workers are in short supply as officials impose city lockdowns and mass testing on a scale unseen in nearly two years.
- The prospect of continued disruptions in the world’s second-largest economy, which has a zero-tolerance strategy for combating the pandemic, is heightening fears that the disruptions will ripple through the global economy.
- Already, companies including memory-chip maker Samsung Electronics, German auto maker Volkswagen and a textiles company that supplies Nike and Adidas are suffering production hitches.
- Since late December, officials have taken measures to counter Covid-19 outbreaks in several Chinese cities, including the eastern port of Tianjin, Xi’an in central China, and the southern technology hub of Shenzhen.
- The world’s third-busiest container port of Ningbo-Zhoushan, near Shanghai, risks worsening backlogs from restrictions on trucks and warehouse operations after more than two dozen Covid-19 cases were confirmed in the surrounding area.
- Chinese authorities are adhering to the same playbook that successfully curtailed initial outbreaks of the pandemic and caused intermittent disruptions to production and supply chains.
- The potential consequences are more severe this time, economists warn, because of the highly contagious nature of Omicron, which has been detected in some areas of China. The variant is hitting the country as Beijing seeks to contain outbreaks ahead of the Winter Olympics, which are set to begin on Feb. 4.
- Several economists said China may escalate its containment policy and some have touted the possibility of a nationwide lockdown, unseen since April 2020.
For Chinese Tech Stocks, No News Is Good News – Wall Street Journal, 1/12/2022
- Shares in major Chinese technology companies like JD.com and Meituan jumped Wednesday, adding to a recent rebound that suggests some investors see good value in the sector after a bruising 2021.
- Analysts and investors said there was no clear catalyst for the rally in Hong Kong-listed Chinese tech stocks.
- But they said buyers appeared to be reassessing the sector in the new year, given lower valuations and an apparent lull in new action from Beijing.
- Meituan and JD.com stock jumped 9% and 11%, respectively, in Hong Kong trading.
- That helped lift the city’s Hang Seng Tech Index by 5%.
- After roughly a year under siege, the sector was finally benefiting from a lack of new measures, said Qi Wang, chief executive of MegaTrust Investment (HK).
VW sales hit 10-year low in 2021, BMW races ahead – Reuters, 1/12/2022
- Volkswagen Group posted its lowest sales figures in 10 years in 2021 at 8.9 million deliveries, the carmaker said on Wednesday, and it said it expected supply chain conditions to remain volatile in the first half of this year.
- By contrast, luxury carmaker BMW saw record deliveries of 2.21 million vehicles from the BMW brand, a success attributed in part to its ability to adapt to supply chain shortages.
- The Volkswagen brand saw an 8.1% drop in sales to just under 4.9 million units, with the biggest fall in China at 14.8%, although battery-electric vehicle sales in the country quadrupled.
- BMW rival Daimler reported last Friday that Mercedes-Benz sales dropped 5% in 2021, losing its crown to BMW for the first time in five years as the premium carmaker with most vehicles sold worldwide.
- Performance for the premium carmakers was weakest in Europe, with the BMW and Mini brands registering just 3.9% growth and Mercedes-Benz an 11.2% drop.
- North America was a strong market for all three carmakers. Mercedes-Benz registered 0.4% growth in the United States and BMW 19.5%. Volkswagen saw 13% growth in the region.
Sainsbury’s raises profit outlook on strong Christmas sales – Reuters, 1/12/2022
- British supermarket group Sainsbury’s raised its full-year profit forecast by at least 9% after grocery sales over the Christmas quarter beat its expectations, even though they fell short of its stellar 2020 festive performance.
- Sainsbury’s said on Wednesday the upgrade reflected cost savings and stronger-than-expected grocery volumes, driven in part by increased in-home food consumption, which offset investment spending and higher operating cost inflation.
- Sainsbury’s, Britain’s No. 2 supermarket group, is now forecasting a full-year 2021-22 underlying profit before tax of “at least” 720 million pounds ($981.5 million) compared with previous guidance of “at least” 660 million pounds and 356 million pounds made in 2020-21.
- While grocery sales fell 1.1% in the third quarter year-on-year they were up 6.6% against the same period in 2019-20, before the pandemic impacted trading.
China’s Startups Attract Record Funding Despite Tech Clampdown – Wall Street Journal, 1/12/2022
- China is luring record levels of investment into the country’s technology sector, even as it clamps down on consumer-technology firms like Alibaba Group Holding and ride-hailing company Didi Global.
- Unlike in previous years, when most Chinese tech funding went to internet startups in e-commerce, the bulk of the money in the past year headed into areas that hew more closely to Communist Party priorities, such as semiconductors, biotechnology and information technology.
- Venture-capital investors put $129 billion into more than 5,300 startups in China in 2021, higher than the market’s last record of around $115 billion for 2018, according to data from investment database Preqin, which has tracked China venture-capital deals since 2000.
- A broader measure of investment financing into Chinese startups, which also includes private-equity financing, reached $165 billion in the first three quarters of 2021, on track to surpass a record of $190 billion in 2017, according to figures from PE Data, an investment-financing database owned by Zero2Ipo Holdings Inc. Full-year data isn’t yet available.
Boris Johnson Apologizes for Party at Downing Street During U.K. Lockdown – Wall Street Journal, 1/12/2022
- British Prime Minister Boris Johnson apologized for attending a drinks party held in the Downing Street garden when strict lockdown measures were in place in 2020, seeking to tamp down growing public outcry and respond to pressure from his own lawmakers over the event.
- Mr. Johnson addressed in Parliament allegations that numerous parties were held in Downing Street while lockdown restrictions were in place. “I know the rage they feel with me, with the government I lead,” Mr. Johnson said Wednesday.
- In May 2020, a senior official in Mr. Johnson’s team emailed staff about meeting for drinks in the garden of Downing Street. Around 100 people were invited when lockdown rules only allowed people to meet one other person outdoors.
- During a tense 40-minute question-and-answer session with lawmakers, Mr. Johnson faced calls from the opposition to resign.
- “Is the prime minister so contemptuous of the British public that he thinks he can just ride this out?” asked Keir Starmer, the Labour Party leader. Mr. Johnson urged lawmakers to await the outcome of the internal investigation being led by a senior civil servant before drawing conclusions.
- H. L. Smith took the first X-ray photograph. It was a hand with a bullet in it. (1896)
- The U.S. House of Representatives rejected a proposal to give women the right to vote. (1915)
- One month after Zanzibar became independent, the ruling Zanzibar Nationalist Party was overthrown in a violent coup. (1964)
- A divided Congress gave President Bush the go-ahead on the Persian Gulf War. (1991)
- Haiti is dealt a catastrophic blow when a magnitude 7.0 earthquake strikes 10 miles southwest of Port-au-Prince, the country’s capital. It is the region’s worst earthquake in 200 years. The number of fatalities were between 46,000 and 85,000 people. (2010)